Gold (XAU) Price Forecast: Steady-to-Lower Despite Mixed Signals from Economy, Hawkish Fed

Highlights

• Gold prices steady as mixed economic signals create uncertainty
• Fed may raise rates in May, announce a pause, or cut rates later in the year
• Opportunity cost of holding non-interest-bearing gold rises with rate hikes

Overview

Gold (XAU) is edging slightly lower on Friday due to conflicting signals from the economy and hawkish Fed speakers, leading long investors to reduce their bullish positions.

At 06:11 GMT, Gold (XAU) is trading $1997.19, up $1.52 or +0.08%. On Thursday, the SPDR Gold Shares ETF (GLD) settled at $186.15, up $0.79 or +0.43%.

Conflicting Fed Signals Create Uncertainty for Gold Narket

Weak U.S. economic data has reinforced the expectation that the Federal Reserve will pause its tightening cycle after the upcoming rate hike next month. However, there is chatter from some hawkish Fed policymakers indicating that the Fed will raise rates in May, announce a pause, and potentially hold rates steady until the end of the year. There is also speculation that the Fed may announce rate cuts later in the year if the U.S. experiences a recession.

The market needs more significant information to determine the direction of gold prices as the lack of clarity and significant news updates has kept them stable.

Weak US Economic Data Triggers Safe-Haven Buying in Gold (XAU) Market

On Thursday, data showed that the number of Americans filing new claims for unemployment benefits moderately increased, suggesting a gradual slowdown in the labor market. Additionally, a separate report indicated that factory activity in the mid-Atlantic region (Philly Fed Manufacturing) declined to the lowest level in almost three years in April. As a result, gold prices rose above $2,000/oz due to the weaker economic outlook, leading to safe-haven buying.

On the same day, Cleveland Fed President Loretta Mester stated that the U.S. central bank has more interest rate increases ahead, but the aggressive move to boost the borrowing cost to curb high inflation is nearing its end.

Gold (XAU) Prices Await PMI Data Amid Expectations of May Rate Hike

The CME FedWatch tool indicates that markets are pricing in an 82.1% chance of a 25 basis-point hike in May, leading to the dollar’s strengthening and making bullion less affordable for overseas buyers. The opportunity cost of holding non-interest-bearing gold rises with rate hikes.

Furthermore, the Purchasing Managers’ Index data scheduled for later in the day at 13:45 GMT is expected to provide insight into the situation, with a significant gap until the U.S. GDP and PCE numbers arrive next week. Both the Flash Manufacturing PMI and Flash Services PMI reports are expected to show slight declines.

Technical Analysis

From a daily technical viewpoint, Gold (XAU) is putting on a neutral performance, trading midway between resistance and its support pivot. This formation tends to indicate impending volatility.

Last week’s rally was stopped by R1 at $2045.30, leading to this week’s setback. However, the selling hasn’t been strong enough to fuel a follow-through break into the pivot at $1927.36.

Since the market is in an uptrend, investors have the choice to wait for a pullback into support at $1927.36 for a low-risk buying opportunity. Or they can wait for a breakout over $2045.30 to signal the return of strong buyers.

For a look at all of today’s economic events, check out our economic calendar.